There are many options to help pay for healthcare expenses, which is great since we all have them. Let’s talk about Health Reimbursement Arrangements, explore the benefits they offer and go over a few of the rules that come with this type of account.
What is a Health Reimbursement Arrangement (HRA)?
Health Reimbursement Arrangements (HRA), also known as health reimbursement accounts are an IRS-approved, employer-funded, tax-advantaged health benefit that can be used to reimburse employees for out-of-pocket medical expenses, as well as personal health insurance premiums.
To note, HRAs are not health insurance. Employers set a monthly amount of tax-free money to offer their employees. Employees are able to purchase the health care items and services they want, which may include health insurance, and the employer will reimburse the employee up to the preset amount.
HRAs are a great way for companies to offer health benefits to help pay for several medical expenses that are not covered under health insurance. For small businesses that cannot provide group health insurance, HRAs are an excellent option.
HRAs have been around for several years, for 2019, the following types of HRAs are available:
- The qualified small employer HRA (QSEHRA)
- The group coverage HRA
- The one-person stand-alone HRA
- The retiree HRA
Each type of HRA has its own rules, so be sure to read the fine print for your specific plan. Let’s go over some rules that apply to HRAs in general.
An HRA is funded entirely by employers
Unlike FSAs and HSAs that allow employees to contribute pre-tax dollars, HRAs are only funded by the employer (or plan sponsor).
Employers decide how much they want to contribute to an employee’s HRA. QSEHRAs are the only HRA type that has a predetermined contribution amount. For 2019, employers can contribute up to $5,150 ($429.17 per month) for self-only employees and $10,450 ($870.83 per month) for families.
HRA covered expenses vary greatly
IRS Publication 502 is the go-to guide for what is defined as eligible medical and dental expenses for IRS purposes. While Publication 502 determines what the IRS allows, when it comes to an HRA, it’s not the final say. Employers can place restrictions on what may and may not be a reimbursable expense, making it important look to closely at the plans guide to ensure you don’t end up with an expense that won’t be reimbursed.
Your dependents are not automatically covered under HRAs
HRAs can just cover the employee or the employee and their dependents. Each HRA will define its own rules. Of note, if dependents are going to be covered by an employee’s HRA, they must also be enrolled in a group health plan.
Employers set many HRA rules, so read the fine print
As we’ve seen, employers have a lot of say in how HRAs work for their employees. HRA rules can be complicated. The allocated amount, reimbursement eligible expenses, what happens when employees are no longer eligible (either by termination and/or retirement) and the reimbursement request process are just some things the employer has control over. Since HRAs have many moving parts, it is vital to read your personal plan in detail to not miss any information regarding your benefit.
HRAs can be a great benefit to help pay for medical expenses. If your employer offers one, take some time to consider utilizing the benefit.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.